Jul

1

Just back from a short trip to Paris where I made a few observations about prices. I recognise there is a good element of bias in my notes because I only spent four days in Paris whereas I have lived in and around London for several years. However, the observations may still hold some useful information:

- Price Diversity: The UK highstreet is flooded with identikit chain stores, fast food chains and coffee outlets. Paris offers a welcome counter balance, with the majority of operators seemingly being run independently. However, despite this diversity of ownership, it seemed as if there was an implicit collusion on prices. Not only were prices in the center of Paris higher than London but the price range also seemed significantly narrower, with crepes costing as much around major tourist spots as they did on the side streets. Contrast this with Central London, where you seem to get a wider diversity of prices for each product, even around tourist hot spots (coffee's and teas can be had for less than £1 around Leicester Square or you can spend a whole lot more if you want a premium product in a top notch establishment).

- A high price level: I knew the pound was weak before I left but I found prices to be painfully high in many establishments in Paris. I jotted down the price of a few food items in the McDonalds at Charles de Gaulle airport and compared them to the equivalents in Central London :

While airports often charge a bit more to their captive audience I remember the premium on the Paris high street being about the same, with burgers costing about a third more. The same held true for prices in a Paris coffee chain versus Starbucks in London. Note, whereas the UK operators charge slightly different prices for their take away or eat/drink-in options, Parisian cafes discriminate in an altogether different way. They charge you a reasonable price to sit or stand at the bar, consume your purchase and be on your way, but if you want to sit at the front and watch life go by, then you can easily pay three times as much for the privilege. Based on my short visit, I'd say GBP/EUR is a pretty strong from a long view perspective. It would be interesting to see $ prices of the McDonald's items for a view on cable.

- Price Responsiveness: In Paris, the price reductions were rather discreet. Contrast this with the view of Oxford Street in London on my return , where heavy promotions plastered the sides of buses and the shop fronts. Make no mistake, the UK is responding dynamically to the recession. I wonder whether France just isn't feeling the recession pinch as hard, or whether this is symptomatic of a lack of broader price flexibility.

Vincent Andres writes from France:

I find price inelasticity rather incredible in France. For instance, in the building business, here in my département [county], enterprises have roughly 2 months of work in their order books (instead of more than 1 year "usually"). You would have expected prices of wood, concrete, etc. going slowly down. Quite the contrary.

Just one representative example : I know a concrete factory in my area, they lose a lot of clients and business … but they will absolutely not move their price down by one cent, not even the day before they close … which is not very far off.

There are certainly many causes and explanations to such inelasticity, but the level of taxes in our products is at such a level (you have to pay for all this paradisiac socialism) that there is no latitude left to producers. Reducing your prices (while your taxes stay the same) may (?) preserve some clients, but is synonymous of selling at a loss, … so you sadly had better stop (… and so I did).